“banks believe these assets are extremely undervalued”
......That’s because they are......
The collateral is good, the paper is bad. The solution requires separating the assets from the broke holders of the paper. The banks need to be able to eliminate the middle guy holding title and directly own the asset.
The poor must go back to renting. The property must be forclosed or title given to the Bank and the former owner becomes a renter
The market way to do all that is for operators with capital to buy up all tranches cheap, paying only cents for the subordinate ones to be sure, and then do deals with the senior class to recreate the original loan portfolio. Next step, triage that portfolio, all the performers repackaged and sold. All the non-performers go to workout people who can expedite all the collateral churn side of things, where right now the banks are swamped and securitization hair gums everything up.
If there were only one lender and the pols would stop monkeying with the foreclosure laws thinking they can make it all go away by just not letting anyone at the collateral, then it'd be RTC easy. But neither is true. That being the case, it may wind up that it has to be Fannie and Freddie doing the first step of the above, with public backing. Hopefully indirectly (Fed buying their debt etc).